Australian adviser unveils carbon trading scheme

By Rob Taylor and Mark Bendeich

CANBERRA (Reuters) - Australia's leading climate guru on Friday laid out a draft carbon trading scheme to rein in rising emissions in the world's top per-capita greenhouse gas polluter.

Economist Ross Garnaut, appointed by the government to design what will be the world's most extensive emissions regime from 2010, said Australia was critically at risk from climate change and urged deep cuts in emissions from the world's top coal exporter.

But Prime Minister Kevin Rudd, who won a huge election victory last November on a green agenda, is under pressure to soften the impact of inevitable energy and fuel price rises from an emissions cap-and-trade scheme.

"We cannot drop the ball," Garnaut said in a speech. "Our location makes us already a hot and dry country. Increases in temperature and lower rainfall have a much bigger impact here than on other wealthy countries."

Garnaut, dubbed "Australia's Nicholas Stern", referring to the British author of a widely read report on fighting climate change, urged Rudd to go further than his current goal to cut greenhouse gas emissions by 60 percent by 2050.

Garnaut urged the inclusion of energy and transport in the scheme, but said big corporates whose foreign rivals are free to pollute should be mollified with compensation.

Voters, though, are already fretting over higher petrol prices, along with rising food and mortgage costs, piling pressure on Rudd to get the scheme right and limit the impact on ordinary Australians.

Polls show rising living costs are already eating into government popularity.

Some rival green and conservative analysts have even begun thinking what on election night last year seemed impossible; that emissions and climate policy could bring so much economic upheaval that Rudd's dominant Labor lasts only one three-year term. Garnaut gave no hard numbers on what his preferred regime could cost, promising those by August. But a "middle-of-the-road" climate policy could gouge 4.8 percent from gross domestic product, or US$384 billion, by end of the century, he said.

POLLUTER PAYS

"An effective market-based system will be as broadly based as possible, with any exclusions driven by practical necessity and not by short-term political considerations," the report said. Power generators say they will have to raise prices, while farmers and coal-miners warn of lost overseas competitiveness.

Under Garnaut's proposals, businesses that pump out less greenhouse gas than their allowable limit would receive credits and be able to sell permits bought at competitive auction to pollute to firms exceeding their carbon emissions quota.

The government is already working on a number of options for the 2010 trading scheme.

"Professor Garnaut's views will be taken into account," Climate Change Minister Penny Wong said.

"The Australian government believes that every nation must do its fair share to tackle climate change and we are working to help shape a long-term global solution," she said.